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QCOM to Expand its S4 Chip Range

Qualcomm Inc. (QCOM), one of the leading manufacturers of smartphone chipsets, has incorporated two more Snapdragon S4 processors – MSM8225Q and MSM8625Q – which are expected to be sent as samples to the customers by the year end and to be shipped from the first quarter of 2013 onwards.

The 28 nm Snapdragon S4 group of processors is mainly used in high-end smartphones and tablets as they support LTE technology, better graphics and enhanced battery life. Hence, additions of two new 45 nm S4 processors, belonging to Snapdragon S4 Play tier will not only provide faster clock speed but will also add more varieties to its chipset range as these processors can be integrated with low-end smartphones, hence enhancing its low-end market base in due course.

Both the processors are capable of providing dual-core and quad-core CPUs to the smartphone manufacturers along with dual-sim support, thereby enhancing the performance of the handset in terms of faster network speed and better viewing of HD videos. Moreover, these processors also support Wi-Fi, Bluetooth 4.0 and FM connectivity using the Qualcomm Atheros AR6005 and WCN2243 chips.

Qualcomm will also launch a single platform – the Snapdragon S4 Plus MSM8930, which supports UMTS, CDMA and TD-SCDMA technology for different Chinese telecom carriers. Additionally, this single platform will also support LTE-TDD and TD-SCDMA standard, catering to mid-tier smartphone segments in China.

Despite such continuous rise in demand for S4 processors, we are apprehensive on Qualcomm’s supply side constrain, as the world’s largest chipset developer is struggling to meet the huge demand for S4 processors. Moreover, more than 400 smartphones and tablets to be launched in the forthcoming months will be using Qualcomm’s Snapdragon processors, out of which more than 150 will be using the dual-core S4 chips, thereby propelling further demand for S4 chipsets.

To avoid such supply constrain, the company has already teamed up with Taiwan Semiconductor Manufacturing Company Ltd. (TSM) and few other third party chipset manufacturers to accelerate the supply of chipsets. However, the recent launch of Apple Inc’.s (AAPL) new LTE-based iPhone 5 may further add to Qualcomm's chipset woes.

We maintain our long-term Neutral recommendation for Qualcomm Inc. Currently, it has a Zacks #2 Rank, implying a short-term Buy rating on the stock.